[Federal Register Volume 69, Number 24 (Thursday, February 5, 2004)]
[Notices]
[Pages 5615-5618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2357]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26344; 812-13059]


PMC Capital, Inc., et al.; Notice of Application

January 30, 2004
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 57(c) of the Investment 
Company Act of 1940 (the ``Act'') requesting an exemption from section 
57(a)(2) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order permitting PMC 
Capital, Inc. (``PMC Capital''), a business development company 
(``BDC''), to merge into PMC Commercial Trust (``PMC Commercial'').

APPLICANTS: PMC Capital and PMC Commercial.

FILING DATES: The application was filed on January 7, 2004 and amended 
on January 29, 2004.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 24, 2004, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549-0609. Applicants, 18111 Preston Road, Suite 600, Dallas, TX 
75252.

FOR FURTHER INFORMATION CONTACT:  Marilyn Mann, Senior Counsel, at 
(202) 942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION:  The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 5th Street, NW., Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. PMC Capital, a Florida corporation, is an internally managed 
closed-end diversified management investment company that has elected 
to be regulated as a BDC as defined in section 2(a)(48) of the Act. PMC 
Capital makes loans principally through three subsidiaries, each of 
which is licensed and regulated by the Small Business Administration 
(the ``SBA'') and registered under the Act as a closed-end diversified 
management investment company (collectively, the ``SBA Subsidiaries''). 
The SBA Subsidiaries are Western Financial Capital Corporation 
(``WFCC''), PMC Investment Corporation (``PMCIC''), and First Western 
SBLC, Inc. (``FW'').\1\ WFCC and FW are wholly owned by PMC Capital. 
Because the SBA owns nonvoting preferred stock of PMCIC, PMCIC is not 
wholly owned by PMC Capital, although it is controlled by PMC Capital. 
PMC Capital, directly or through the SBA Subsidiaries, makes loans 
primarily to new and developing companies whose securities have no 
established public market. PMC Capital's common stock trades on the 
American Stock Exchange.
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    \1\ WFCC is a Florida corporation that is licensed as a small 
business investment company (``SBIC'') under the Small Business 
Investment Act of 1958 (the ``SBIA'') and provides long-term loans 
to borrowers whether or not they qualify as ``disadvantaged.'' PMCIC 
is a Florida corporation that is licensed as a specialized small 
business investment company (``SSBIC'') under the SBIA. PMCIC 
provides long-term collateralized loans to eligible small businesses 
owned by ``disadvantaged'' persons, as defined under SBA 
regulations. FW is a Florida corporation that is licensed as a small 
business lending company (``SBLC'') and originates variable-rate 
loans that are partially guaranteed by the SBA under its section 
7(a) loan guarantee program.
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    2. In addition to its lending operations, PMC Capital earns income 
through its wholly-owned subsidiary, PMC Advisers, Ltd. (``Advisers'') 
and PMC Asset Management, Inc., a wholly-owned subsidiary of Advisers. 
Advisers and PMC Asset Management, Inc. provide investment advisory and 
administrative services to PMC Commercial.\2\
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    \2\ PMC Capital is also directly or indirectly the sole 
shareholder or partner of the following non-investment company 
subsidiaries: PMC Funding Corp., PMC Capital, L.P. 1998-1, and PMC 
Capital, L.P. 1999-1. In addition, PMC Capital and PMC Commercial 
jointly own interests in several special purpose entities formed in 
connection with structured loan sale transactions.
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    3. PMC Commercial is a Texas real estate investment trust and 
primarily originates loans to small businesses collateralized by first 
liens on the real estate of the related business. In addition, its 
investments include the ownership of commercial properties in the 
hospitality industry. PMC Commercial's loans receivable are primarily 
to borrowers in the hospitality industry. It also originates loans for 
commercial real estate in the service, retail, multi-family and 
manufacturing industries. PMC Commercial's common shares trade on the 
American Stock Exchange.
    4. Applicants have proposed a merger (the ``Merger'') and have 
entered into a merger agreement pursuant to which PMC Commercial has 
agreed to acquire PMC Capital. If the Merger is completed,

[[Page 5616]]

PMC Capital shareholders will receive 0.37 PMC Commercial common shares 
of beneficial interest for each share of PMC Capital common stock they 
own and will hold approximately 40.49% of PMC Commercial's common 
shares after the Merger. PMC Commercial shareholders will continue as 
shareholders after the Merger, holding approximately 59.51% of the 
outstanding shares of PMC Commercial.
    5. Upon completion of the Merger, PMC Capital will be merged with 
and into PMC Commercial, and the operations of PMC Commercial will 
include the continuation of the businesses of PMC Capital. Each of PMC 
Capital's wholly-owned subsidiaries will remain in existence following 
the Merger, and will be wholly-owned by PMC Commercial. Both Advisers 
and PMC Asset Management, Inc. will continue in existence after the 
Merger; however, it is currently intended that they will have no 
advisory contracts. It is anticipated that they will be taxable REIT 
subsidiaries that will lease foreclosed properties and generate the 
income of such properties, if any.
    6. At a meeting of the PMC Commercial board of trust managers held 
on June 14, 2002, management of Advisers indicated that a merger 
between PMC Capital and PMC Commercial might be beneficial and should 
be evaluated by PMC Commercial. The PMC Commercial board of trust 
managers determined that it would be appropriate to consider such a 
transaction and established a special committee of trust managers (the 
``PMC Commercial Special Committee'') with no relationship to PMC 
Capital to determine whether such a transaction would be in the best 
interests of PMC Commercial shareholders and to report back to the full 
board. On November 4, 2002, the PMC Commercial Special Committee 
submitted an indication of interest to the PMC Capital board of 
directors.
    7. On November 8, 2002, having received and reviewed PMC 
Commercial's indication of interest, the PMC Capital board held a 
special meeting. At that meeting, the PMC Capital board appointed a 
special committee composed of the PMC Capital directors who are not 
``interested persons'' as defined in section 2(a)(19) of the Act (the 
``PMC Capital Special Committee''). The PMC Capital Special Committee 
was empowered to determine whether the proposed merger would be in the 
best interests of PMC Capital's shareholders and to make a 
recommendation to the PMC Capital board of directors. The PMC Capital 
Special Committee was also authorized to (a) retain legal and financial 
advisors of its own choosing, (b) review documents and otherwise 
perform due diligence with respect to PMC Commercial, and (c) prepare 
and negotiate the terms of the proposal and all documents necessary to 
effect the Merger.
    8. On November 8, 2002, at its first meeting, the PMC Capital 
Special Committee engaged Sutherland Asbill & Brennan LLP 
(``Sutherland'') as its legal counsel. On December 6, 2002, the PMC 
Capital Special Committee engaged A.G. Edwards, an investment banking 
firm, as its financial advisor in connection with the proposed merger. 
A.G. Edwards had no previous relationship with PMC Capital or PMC 
Commercial or any of their respective affiliates. From December 9, 2002 
to January 6, 2003, the PMC Capital Special Committee, Sutherland and 
A.G. Edwards conducted extensive due diligence investigations of PMC 
Capital and PMC Commercial. As part of that process, representatives of 
A.G. Edwards met with senior management of both PMC Capital and PMC 
Commercial.
    9. On January 6, 2003, representatives of the PMC Capital Special 
Committee, Sutherland and A.G. Edwards met to discuss the results of 
the due diligence process and to discuss the terms of the indication of 
interest. At this meeting, A.G. Edwards presented to the PMC Capital 
Special Committee a comprehensive review of the terms of the proposal 
and several possible strategic alternatives thereto, including a REIT 
conversion and recapitalization, a partial asset liquidation and share 
repurchase, and an equity financing. The PMC Capital Special Committee 
determined at this meeting to pursue the indication of interest with an 
exchange ratio range of 0.34 to 0.41. Subsequently, the PMC Commercial 
Special Committee and PMC Capital Special Committee negotiated an 
exchange ratio of 0.37.
    10. On March 27, 2003, the PMC Capital Special Committee met with 
its legal and financial advisors to discuss the exchange ratio. A.G. 
Edwards delivered its oral opinion to the PMC Capital Special Committee 
that, based on and subject to the various assumptions and 
qualifications to be set forth in its written opinion as of March 27, 
2003, the exchange ratio of 0.37 was fair to PMC Capital shareholders 
from a financial point of view. The PMC Capital Special Committee then 
unanimously voted to recommend to the PMC Capital board of directors 
that (a) the Merger and the transactions contemplated thereby were fair 
to and in the best interest of PMC Capital shareholders from a 
financial and procedural point of view; and (b) the Merger, the merger 
agreement and the transactions contemplated thereby be approved and 
recommended to PMC Capital shareholders.
    11. On March 27, 2003, the full PMC Capital board of directors met 
to consider the proposed merger, the merger agreement and the 
transactions contemplated thereby. Sutherland reviewed the terms of the 
merger agreement with the board and discussed the fiduciary duties to 
which the board members were subject. A.G. Edwards delivered its oral 
opinion that, based on and subject to the various assumptions and 
qualifications to be set forth in its written opinion as of March 27, 
2003, the exchange ratio of 0.37 was fair, from a financial point of 
view, to PMC Capital shareholders. The Chairman of the PMC Capital 
Special Committee presented the unanimous recommendation of the PMC 
Capital Special Committee that (a) the Merger and the transactions 
contemplated thereby were fair to and in the best interest of PMC 
Capital shareholders from a financial and procedural point of view; and 
(b) the Merger, the merger agreement and the transactions contemplated 
thereby should be approved and recommended to PMC Capital shareholders.
    12. Based on the information and factors considered by the PMC 
Capital Special Committee and the unanimous recommendation of the PMC 
Capital Special Committee, the PMC Capital board of directors (a) 
determined that the Merger and the transactions contemplated thereby 
were fair to and in the best interest of the PMC Capital shareholders 
from a financial and procedural point of view; and (b) approved the 
Merger, the merger agreement and the transactions contemplated thereby 
and recommended such matters to PMC Capital's shareholders.
    13. The exchange ratio was based on (a) The financial terms and 
conditions of the merger agreement; (b) historical business and 
financial information relating to the two companies; (c) financial 
forecasts and other data relating to the two companies' business; (d) 
discussions with members of senior management with respect to the 
business and prospects of the two companies, including the benefits and 
costs related to the Merger; (e) the historical stock prices and 
trading volumes of the two companies' common stock; and (f) public 
information with respect to other companies believed to be generally 
comparable to the two companies.

[[Page 5617]]

    14. In reaching its decision to approve the Merger, the terms of 
the merger agreement and the transactions contemplated thereby and to 
recommend that the PMC Capital board of directors approve and recommend 
such matters to PMC Capital's shareholders, the PMC Capital Special 
Committee consulted with PMC Capital management as well as its legal 
counsel and financial advisor and carefully considered the following 
material factors: (a) Its review and knowledge of the business, 
financial condition, results of operations and prospects of PMC 
Capital, and its general familiarity with and knowledge about PMC 
Capital's affairs; (b) the present and possible future economic and 
competitive environment of the small business lending industry in which 
PMC Capital operates; (c) the written opinion of A.G. Edwards as of 
March 27, 2003 that the exchange ratio of 0.37 of a common share of PMC 
Commercial for each share of PMC Capital common stock was fair, from a 
financial point of view, to PMC Capital's shareholders, and the 
analyses presented to the PMC Capital Special Committee by A.G. 
Edwards; (d) the need to increase the capital base of PMC Capital at a 
reduced cost to achieve operating efficiencies, which the Merger of PMC 
Capital with PMC Commercial could offer; (e) the need to diversify PMC 
Capital's investment assets in an effort to provide PMC Capital 
shareholders with greater earnings performance and operating and 
dividend stability; (f) its belief that any transaction with PMC 
Commercial should result in maximizing shareholder value; (g) after 
conducting a review of strategic alternatives, its belief that the 
proposed merger provided the best method of maximizing shareholder 
value; (h) the negotiations it and its financial and legal advisors 
conducted with the PMC Commercial Special Committee and its financial 
and legal advisors; (i) the nature of the parties' representations and 
warranties contained in the merger agreement; (j) the other terms and 
conditions in the merger agreement, including the right of PMC Capital 
to terminate the merger agreement prior to its approval by PMC Capital 
shareholders in the exercise of its fiduciary duty in connection with a 
superior proposal, subject to a termination fee; (k) that the combined 
company would have a larger equity market capitalization, which could 
generate greater research coverage and institutional investment as well 
as potentially increase the trading volume of the PMC Commercial common 
shares to be received by PMC Capital shareholders in the Merger as 
compared to the trading volume of PMC Capital's common stock before the 
Merger; (l) the historical market prices and trading information with 
respect to the PMC Capital common stock and PMC Commercial common 
shares; (m) the comparisons of historical financial measures for PMC 
Capital and PMC Commercial, including earnings, return on capital and 
cash flow, and comparisons of historical operational measures for PMC 
Commercial and PMC Capital; (n) the expectation that the Merger would 
be a tax-free transaction for U.S. Federal income tax purposes; (o) the 
proposed composition of the management of PMC Commercial following the 
Merger, which would facilitate the integration of both companies and 
assist the continuation of the best practices of PMC Capital and PMC 
Commercial following the completion of the Merger; (p) the expectation 
that unification of the businesses of PMC Capital and PMC Commercial 
would remove some of the confusion in the marketplace resulting from 
having two separate public companies with similar names and management; 
(q) the timing of receipt and the terms of approvals from appropriate 
governmental entities, including the possibility of delay in obtaining 
satisfactory approvals or the imposition of unfavorable terms or 
conditions in the approvals; (r) the desire to simplify PMC Capital's 
complex business and regulatory structure; (s) the likelihood that the 
transactions contemplated by the Merger would be successfully 
completed; and (t) the current industry, economic, market and other 
relevant conditions.
    15. On August 22, 2003, PMC Commercial's registration statement on 
Form S-4 (the ``Registration Statement'')\3\ was filed with the 
Commission. The Registration Statement includes a joint proxy 
statement/prospectus (the ``Joint Proxy Statement/Prospectus''), which 
was used to offer the securities to be issued by PMC Commercial and to 
solicit proxies in connection with the approval of the Merger by the 
stockholders of each of PMC Commercial and PMC Capital. The 
Registration Statement was declared effective on November 12, 2003, and 
the Joint Proxy Statement/Prospectus was first mailed to shareholders 
on or about November 12, 2003. On December 30, 2003, PMC Capital 
shareholders approved the Merger. On January 9, 2004, PMC Commercial 
shareholders approved the Merger.
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    \3\ File No. 333-108180.
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Applicants' Legal Analysis

    1. Section 57(a)(2) generally makes it unlawful for any person 
related to a BDC in a manner described in section 57(b), acting as 
principal, knowingly to purchase from such BDC any security or other 
property. Section 57(b), in turn, provides that section 57(a) applies 
to, among other persons, any person directly or indirectly controlled 
by or under common control with a BDC.
    2. The transfer of the assets of PMC Capital to PMC Commercial as a 
result of the Merger could be deemed to violate section 57(a)(2) to the 
extent that PMC Capital and PMC Commercial are deemed to be under 
common control by virtue of PMC Capital controlling Advisers, which, as 
PMC Commercial's investment adviser, could be deemed to control PMC 
Commercial.
    3. Section 57(c) of the Act provides that the Commission will 
exempt a transaction from section 57(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching of the BDC or its 
shareholders on the part of any person concerned, and the proposed 
transaction is consistent with the policy of the BDC and consistent 
with the general purposes of the Act. Applicants believe that the 
requested relief meets these standards for the reasons discussed below.
    4. Applicants believe that the Merger, whereby shares of PMC 
Capital will be converted into the right to receive shares of PMC 
Commercial, would benefit PMC Capital's stockholders in a number of 
ways. It would result in increased size, increased portfolio diversity, 
and a superior mix of current and capital gain income. The Merger would 
also eliminate the need for costly duplication of efforts related to 
maintaining and reporting for two separate public entities.
    5. Applicants assert that the extensive involvement of the board of 
PMC Capital, including PMC Capital Special Committee, the fairness 
opinion rendered by the independent financial adviser for PMC Capital, 
and the fact that PMC Capital was represented by separate counsel in 
connection with the Merger ensures that no overreaching of PMC Capital 
or its shareholders will occur in connection with the Merger.


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    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-2357 Filed 2-4-04; 8:45 am]
BILLING CODE 8010-01-P